Why store credit can beat discounts to persuade customers to buy

Is any tactic more identifiable with email marketing than the discount? We start right at opt-in when we offer shoppers a discount for opting in as soon as they land on the home page. But is discounting the best tactic to drive more sales? No, it isn’t. In fact, it could hurt your brand’s long-term growth!

Truth is, though, many marketers hate discounts. They eat away at razor-thin profit margins and can cheapen a product’s value. We also worry we’ve trained customers to wait for discounts before they’ll buy. There’s a basis for this: Getting exclusive discounts is still the No. 1 reason why customers opt in to email promotions.

In turn, wary customers suspect brands raise prices artificially before dropping discounts, cancelling out genuine price savings. That hurts brand image and can drive bargain-hunting customers to the competition.

The alternative: store or account credit

The store credit acts like cash in a customer’s account. It reduces the listed price on eligible products like a discount, but it resonates differently in customer brains. Handled properly, it can feel like an upgrade or a VIP gift. It can also be a more effective way of managing customer relations and generate higher value in the long run.

The store credit also taps into powerful psychological biases that you’re either using accidentally or missing entirely.

Store credit versus percentage-off discounts

As different as they are, both are discounting tactics that reduce customer costs as a way to drive sales. Each has a place in the marketing ecosystem. Which one you choose will depend on your campaign strategy. (Sound familiar? It’s one of my mantras: “Strategy before tactics!”)

Here’s how the two compare as retail pricing tactics:

• Discounts win in the short run because they promote acquisition (hence the use at opt-in) and faster sales. It’s the tactic to use when you want to clear the shelves – in stores or online.
• Store credits are virtual cash, just like gift cards. A percentage discount is a concept, but a credit is something you can picture in your wallet. It is more tangible, as it’s there waiting for you to use it. Credits, like gift cards, often induce customers to spend beyond the face value and don’t cheapen product or brand appeal. Use this tactic to build long-term customer value.

Discounts, cognitive load, and System 1/System 2 thinking

“Cognitive load” is the work our minds have to do to make sense of something or to find the value. A 20% discount is nice, but it forces customers to calculate their savings. That creates friction and makes them think harder. You can do it for them by showing them at the point of sale how much they’re saving, but you have to get them to that point to make it work, and impatient customers might not give you that chance.

The store credit can also be more compatible with System 1 thinking, which is fast, automatic, emotional, and intuitive. System 2 is slower, more rational, deliberate, logical, and analytical.

As I say in my blog post “Why emotions drive marketing decisions (even when we think they don’t)” on the Holistic Email Marketing blog, “Most marketers assume their audience is engaging System 2, but in reality, System 1 makes the first move. And often, it makes the final decision, too.”

Anything that forces customers to slow down, think, or calculate could cost you sales.

Why store credit hits differently at the campaign level

Below are three recent emails from my personal inbox. Each one uses store/account credits to promote sales but in different ways:

Brand: Sima. Subject line: Account balance: $5.20

Brand: Il Makiage. Subject line: We processed your credit adjustment

Brand: Wonderskin. Subject line: Account Update: A credit has been added to your account

Each brand uses the store credit but in different ways:

1. Sima: “You have store credit but it expires in 48 hours.”

2. Il Makiage: “Your £15 e-gift code is expiring”

3. Wonderskin: “10.67 has been credited to your account”

See the difference? None of them shouts, “20% off!” Instead, they’re telling you about something you already have in hand. That’s that cash-in-wallet concept I mentioned earlier.

That impression can change your campaign from just one more discount in the inbox to an investment your customers can spend.

4 psychological biases supporting store credit over discounts

As part of my research into studying the buyer’s mind and applying it to improve email marketing, I’ve found these four are most relevant:

1. The endowment effect

This is the “bird in hand beats two in the bush” concept. We value what we believe we own more than something we could get but don’t possess yet.

A 15% discount is ephemeral. We have to do the math to figure out what we’re saving. This might be easy for you if you ever worked in retail, but it adds friction to the sale for the rest of us who aren’t math geniuses. (See my earlier comments about reducing cognitive load.)

When you give us £10.67 on our account, however, that’s real money that we can see.

Copy like “your store credit,” “credited to your account,” or “your balance” shifts the discount from incentive to asset, from off in the distance to something in our hands. Not using it means we’re losing money, and that introduces the next emotional trigger.

For a more detailed look at the endowment effect and how to use it in your email marketing, see this post on the Holistic Email Academy blog: “The Endowment Effect in Marketing: Why Ownership Changes Perception.”

2. Loss aversion

We humans, are wired to avoid loss more than to pursue gain. We’re more worried that we’ll lose that bird in our hand (the store credit) if we hunt for the two birds still in the bush.

As I mentioned earlier, “15% off” equals a potential gain, while “£10 credit expiring” is a guaranteed loss.

What feels worse? Losing that £10, even though we have to buy something to use it.

You can pump up the loss avoidance by adding a deadline, as the email examples illustrate. Discounts are like buses. If we miss this one – unless it’s outrageously high, like 90% off – we know another one will come along. But if we miss a deadline on a store credit, it feels as if we let it slip through our hands – money forfeited.

3. Mental accounting

When a brand says, “Credited to your account: £10.67,” it creates a mental wallet.

This is important to understand. We categorise money differently, depending on where it comes from. A store credit goes into one wallet. Refunds and gift cards or gift codes have their own wallets.

As soon as money goes into those wallets, we feel compelled to use it in the intended place. That’s how credits – in whatever form you use, separate from percentage-off discounts – can drive repeat purchases and build long-term customer value.

4. The sunk cost nudge

A sunk cost is money, time, or effort that you’ve already spent and cannot be recovered. Here, it applies to money you’ve already spent. You’ve already bought something from that brand.

Whether the credit is brand goodwill for regular customers, a discount to cover a price decrease, a loyalty incentive, it builds on something that happened between you and the brand. You earned that credit! You’re already invested in it, and you don’t want to waste what someone has given you.

This approach nudges customers to act without framing it as a sale. It feels personalised because it’s based on behaviour. I’ll explain these scenarios in more detail below.

But first ….

Wait – this sounds like manipulation!

You might well think that. Isn’t a credit just a percentage discount dressed up in fancier clothes? Not when handled ethically and strategically.

It’s true that both will take a piece out of your bottom line. That’s why you have to be deliberate about how you use them. It all goes back to your campaign strategy (there’s that concept again!) and what you want to gain from your campaign.

Here’s how you can serve your customers honestly:

• Show the customer’s balance. If the credit varies according to factors like purchase history or loyalty level, you will need a CRM system that can drop in each customer’s balance.
• State the expiry date. Make sure it’s obvious, so that customers can see it quickly. Nothing deflates brand value like letting money slip out of your customers’ hands.
• Make redemption frictionless. Instead of making customers type in long credit codes at checkout, apply it automatically.
• Suggest products customers would be likely to buy based on past purchases or cart values.

Using store credit instead of percentage-off discounts in logical situations will also increase their value to customers and make it look less like ye olde marketing manipulation:

• Refund adjustments
• Loyalty rewards
• Customer-service responses
• Win-back campaigns
• Birthday rewards
• Occasional “thank you” rewards for high-value customers

Final thought: Test it first

As always, don’t discard one strategy for another without testing to discover whether the change would be worth the effort. The last thing you want to do is to blow up something that’s working!

If you don’t use store credit regularly as a sales-driving tactic, test it in a few scenarios, like the ones I listed above. You can also test different credit amounts or test to discover whether they’re more effective with some customer groups over others.

Your goal, as with all marketing tactics, is to understand what motivates your customers to act. When does the percentage-off discount work better, and when should you shift to store credit?

The answer will be different for every brand. But everyone wins when you make customers feel special and valued. That won’t happen with a flat 20% discount.